1. Field of the Invention
The present invention relates to credit systems, and more particularly, to an online credit escrow service business method and system of protecting the credit of debtors who are paying back their debts.
2. Description of the Related Art
In order to facilitate the sale of goods and services, merchants often provide credit accounts to their customers. A credit account may also be generated by a “point of sale” transaction whereby a consumer tenders a negotiable instrument, such as a check, that is insufficient to cover the required amount of the transaction. These merchant/creditors allow the consumers/debtors to make purchases on credit, rather than using cash. Consumers incur debt with each credit purchase, which may be repaid over time according to terms and conditions generally dictated by the merchant/creditor. Credit accounts are frequently set up to offer a customer one or more lines of credit, typically including at least one revolving credit line in which the customer may choose either to pay the full amount of debt owed on his account by a specified date or defer payment of at least a portion of the debt to a later date. Credit accounts may also include a loan for a specific purchase, such as an installment loan, or a line of credit from a retailer. The creditor typically charges the customer interest or finance charges for deferred payments during the period of deferral.
The creditor generally establishes a credit limit for each credit account, defining the maximum amount of credit available to the customer for making purchases at any given time. When a customer makes a credit card purchase, the amount of credit available to the customer, often called the available balance, is reduced by the amount of the purchase, and the amount of debt currently owed by the customer, often called the outstanding balance, is increased by the amount of the purchase.
When a consumer (debtor) fails to pay “as agreed” on a credit card, revolving credit account, or installment loan offered by the creditor, the creditor often submits a record of the consumer's default to one or more credit reporting agencies. After a period of time with no payment from the consumer, the service provider is required to “charge-off” the balance owed by the consumer as a loss. The “charge-off” typically is also submitted to the credit reporting agencies for inclusion in the debtor's credit history file.
Creditors often have difficulty in recovering charged-off debt because the terms they offer to the consumer are often unduly onerous. Moreover, sometimes creditors renege on their promise to favorably update a consumer's credit history file maintained by one or more of the commonly used credit reporting agencies. Given the borderline unscrupulous tactics used by creditors and their collection agencies, the consumer's risk in accepting new terms to pay an otherwise “charged off” debt far exceeds his/her reward for doing so. A debtor who, without professional assistance, attempts to negotiate payment terms with a creditor is likely to end up with unfavorable payment terms and broken promises on the part of the creditor to accurately update the debtor's credit file.
In addition to debtor-side risks, the creditor also enters into a payment transaction with some risk. For example, a consumer (the debtor) might refuse to pay or submit an instrument with insufficient funds (NSF) to pay the agreed upon amount to the creditor after the creditor has updated the credit report data in favor of the consumer. In other cases, the debtor might submit payment to the creditor while simultaneously issuing a stop payment order on the payment instrument. An unwary creditor may have relied on the payment instrument in updating the credit report data only to discover that the creditor has been duped into providing a clean credit report on behalf of the consumer.
To overcome the aforementioned problems, it would be desirable to protect the interests of both debtor and creditor participating in a payment transaction to liquidate outstanding debt balances.
Thus, an online credit escrow service solving the aforementioned problems is desired.